Thu Apr 13 05:24:40 2000
(FIRST CALL) ABSG: Will Infrared Compete With Fixed Wireless? Not Likely
ABSG: Will Infrared Compete With Fixed Wireless? Not Likely Soon
05:24am EDT 13-Apr-00 Deutsche Banc Alex. Brown (B. Fifer/J. Hines/C. Av) ARTT
Fifer, Bo 212-469-7240 04/13/2000
Hines, Jeff L 212-469-7250
Avery, Christopher H. 212-469-7274
Deutsche Banc Alex. Brown
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ADVANCED RADIO TELECOM CORP. (ARTT) "STRONG BUY"
TELIGENT INC. (TGNT) "STRONG BUY"
WINSTAR COMMUNICATIONS INC. (WCII) "STRONG BUY"
Will Infrared Compete With Fixed Wireless? Not Likely Soon
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52-WK Earnings Per Share
FY Price Price 3-5 Yr Est.
Ticker End 04/12/2000 Range 1999 2000 2001 Growth Chg?
ARTT 12 18.75 49-7 (2.81)A (2.50) (2.19) N
TGNT 12 47.50 100-41 (9.94)A (11.43) (7.14) N
WCII 12 36.94 67-24 (13.80)A (9.02) (6.10) N
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HIGHLIGHTS:
-- Lucent and TeraBeam Networks announced a joint venture today (12-Apr) to
develop TeraBeam's "fiberless optic" broadband optical network architecture.
-- Investors' concern that the new technology could quickly "out-date" fixed
wireless technology have been grossly exaggerated in our view, and contributed
to 1-day declines of 17%, 5%, and 14% for WCII, TGNT, and ARTT, respectively,
versus a 7% decline in the NASDAQ. More likely, however, we believe
investors used the news as an excuse for selling into a very weak technology
tape, as we see no negative near-term implications to the fixed wireless
industry from today's announcement.
-- We believe the announcement is at worst neutral for the fixed wireless
players as TeraBeam's plans call for nationwide deployment over a four year
time period and will more likely compete with the higher end services (e.g.,
fiber) because of severe propagation restrictions.
-- Further, we believe where appropriate the fixed wireless players will have
the opportunity to use the technology to address potential customers,
particularly in the case of WinStar, which already has a significant
relationship with Lucent for the purchase of network equipment.
-- NET-NET: Free space optical technology has been in development for a
number of years now, and the only new news in today's announcement was that the
two prominent developers of the technology would be joining forces. We
continue to believe there is plenty of room in the market for an additional
competitor, with even more room likely available in four years when TeraBeam's
network is in place. We are maintaining our STRONG BUY investment ratings on
WCII, TGNT, and ARTT.
DETAILS:
Lucent and TeraBeam Networks announced a joint venture today (12-Apr) to
develop TeraBeam's "fiberless optic" broadband optical network architecture.
Investors' concern that the new technology could quickly "out-date" fixed
wireless technology have been grossly exaggerated in our view, and contributed
to 1-day declines of 17%, 5%, and 14% for WCII, TGNT, and ARTT, respectively,
versus a 7% decline in the NASDAQ. More likely, however, we believe
investors used the news as an excuse for selling into a very weak technology
tape as we see no negative near-term implications to the fixed wireless
industry from today's announcement.
WHAT IS THIS NEW "DISRUPTIVE" TECHNOLOGY?
Simply put, TeraBeam and Lucent are developing a point-to-multipoint technology
that uses infrared light to transmit ultra-high speed data streams to customers
subject to distance and climatological constraints (sometimes referred to a
"fiberless optics"). We emphasize that we have NOT had an opportunity to
conduct thorough due diligence on this "new" technology, but we do know the
following:
The Pros To Infrared Technology...
This is high-speed stuff, no ifs, ands, or buts: ultimately on the order of [HI
1 gigabit/second] and above. As contemplated today, the technology offers the
ability to shoot from a "hub" (or some other point of origin) directly to the
customer's floor by shooting through glass to an exterior office. That would
allow the carrier to bypass the roof right acquisition process and in-building
wiring headaches by beaming data directly to the customer premises. This would
decrease deployment times and reduce costs. Infrared technology also does not
require a license to operate (although we point out that WinStar, Teligent, and
ART were granted, as opposed to paying for, their initial spectrum positions by
the FCC).
The Cons To Infrared Technology...
Infrared technology is subject to many of the same constraints that fixed
wireless (e.g., microwave frequencies) fought through in its development,
namely line of sight and weather-related issues. As we understand the
technology today, if you can't see the target building with your eyes, you
can't reach it with infrared. Meaning snow, rain, and particularly fog can
interrupt the signal. The solution is to engineer the links to a maximum
length that will "guarantee" a given level of service, i.e., the more reliable
network you are trying to build the shorter the "hops" must be. We believe
infrared will be limited to perhaps one-quarter to one-half mile practical
distance limitations to maintain carrier-class level of service.
Simply shooting through glass raises another technological hurdle, in that
glass can introduce further degradation of quality into the data stream (we
would not, however, speculate against technology in this case and ultimately
any such issues may well be ironed out over time).
INFRARED IS JUST NOT A NEAR-TERM (OR MEDIUM-TERM) COMPETITIVE THREAT
According to TeraBeam's press release, the Company is planning a nationwide
roll out over a four year time period. By that point, we estimate the current
fixed wireless carriers to have established a significant operating presence:
2003 Estimate Roof Rights Buildings Customers
WinStar 13,800 7,500 90,500
Teligent 32,100 18,400 156,800
Advanced Radio Telecom 12,000 9,000 53,200
Source: DB Alex. Brown estimates.
By TeraBeam's estimates (from Forrester Research), the market for broadband
Internet access by 2003 will approximate $33 billion--more than enough room
for additional players, we believe!
Further, we believe the TeraBeam network will compete more directly with
the higher end services (e.g., fiber) because of its capacity and distance
profile. In other words, TeraBeam would appear to be an appropriate solution
for ultra high-bandwidth situations located a relatively short distance from
the local network POP, or exactly the same profile as where fiber today enjoys
a relative advantage over competing technologies.
We view the telecommunications market in three segments: DSL on the low end,
wireless in the middle, and fiber on the high end, with wireless enjoying by
far the largest "sweet spot". We view this technology as being more
competitive on the high end of the market, above wireless in most cases and
certainly above DSL. However, in four years the CLEC (or "DLEC" for data)
game will likely still be same as it is today: win market share from the
incumbents.
None of this is to say that the market for infrared access solutions is by any
way small. In fact, it may an ideal technology for extending the reach of
fiber networks a short distance and will most likely address a very valuable
segment of the market.
JUST ANOTHER ACCESS TECHNOLOGY
We believe where appropriate, the fixed wireless players will have the
opportunity to use the technology to address potential customers ,
particularly in the case of WinStar, which already has a significant
relationship with Lucent for the purchase of network equipment. We do not know
the nature of the relationship between Lucent and TeraBeam, but we can't
help but believe Lucent would want this technology available in its product
portfolio to sell to its carrier customers. In fact, the TeraBeam technology
will be branded with the Lucent name.
The opportunity for other carriers to utilize the technology is supported by
TeraBeam's plan to both market services directly and through wholesale
arrangements with yet-to-be-named carrier partners.
NET-NET
Free space optical technology has been in development for a number of years
now, and the only new news in today's announcement was that the two prominent
developers of the technology would be joining forces. We continue to believe
there is plenty of room in the market for an additional competitor, with even
more room likely available in four years when TeraBeam's network is in place
and the demand for bandwidth only likely to increase dramatically in the
interim. We are maintaining our STRONG BUY investment ratings on WCII ($66
target price, based on DCF), TGNT ($89 price target, based on DCF), and ARTT
($34 price target, based on DCF).
Obewon |
